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TMI Blog2013 (7) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... ject of the impugned Act, as stated in its preamble is to provide for the levy and collection of taxes on the entry of certain goods into local areas of the State of West Bengal for consumption, use or sale therein and to provide for matters connected therewith or incidental thereto for the purpose of creating a compensatory Entry Tax Fund. Some of the definitions in Section 2 of the impugned Act, relevant for the purpose of this writ application are as follows:- "Section 2(1) (g) "dealer" means a dealer under the West Bengal Value Added Tax Act, 2003, or under the West Bengal Sales Tax Act 1994, as the case may be, and includes- West Ben. Act XLIX of 1994. (i) a handling or delivery agent or an agent acting in any manner on behalf of the principal, or any other person who takes delivery or is entitled to take delivery of goods on behalf of a dealer on its entry into a local area, (ii) Where specified goods entering any local area have been dispatched to such local area by rail, road, water, air or post, and the consignee of such specified goods does not take delivery of such goods upon entry and such specified goods are sold under the provisions of any other law, the purchaser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding a co-operative society, a factor, a broker, a commission agent, a del credere agent, an auctioneer, an agent for handling or transporting of goods or handling of document of title to goods, or any other mercantile agent, by whatever name called, an educational institution, any bank, any hospital or nursing home or diagnostic centre, a joint-venture company, and a limited liability partnership or other juristic person; Section 2(1) (y) "turnover of imports", used in relation to any registered dealer with reference to a period of time, means the aggregate of the import value of specified goods which the dealer brings or receives in any local area during the period for consumption, use or sale therein, and used in relation to an unregistered dealer or importer other than a dealer, means the import value of a consignment of specified goods brought or received in any local area for consumption, use or sale therein, whether by the dealer or the importer other than a dealer himself or by any other person;" Section 2(2) of the impugned Act interalia provides that words and expressions used but not defined in the impugned Act but defined in the West Bengal Sales Tax Act, 1994 or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State in the same form in which such goods have been entered into the local area; and (c) such other entry of goods, either in full or in part, as may be prescribed. (5) The expression "taxable turnover of imports" as stated in subsection (1) shall mean, in respect of a dealer or an importer other than a dealer liable to pay tax on the entry of specified goods into a local area for consumption, use or sale therein, that part of his turnover of imports which remains after deducting therefrom- (a) turnover of imports relating to entry of specified goods into a local area, if it is proved to the satisfaction of the Commissioner that such goods have already been subjected to tax under this Act in the same form; (b) turnover of imports relating to entry of specified goods into a local area, if it is proved to the satisfaction of the Commissioner that such goods have been purchased in the same form against a tax invoice, or invoice, or bill issued under the West Bengal Value Added Tax Act, 2003, or the West Bengal Sales Tax Act, 1994, by a dealer registered under the West of Bengal Value Added Tax Act, 2003, or the West Bengal Sales Tax Act, 1994, as the case may be; (West Ben. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin such period, in such manner and along with such documents, as may be prescribed. (2) A registered dealer shall pay into the appropriate Government Treasury in the prescribed manner and within the prescribed date the full amount of tax payable by him under this Act on the basis of the return to be submitted under sub-section (1) and shall furnish along with such return satisfactory proof of the payment of such tax. (3) Where the Commissioner is satisfied that a registered dealer has defaulted in, or has attempted to evade, payment of tax under this Act, he may, for reasons to be recorded in writing, demand from such registered dealer an amount towards security for safeguarding revenue in respect of the tax payable under this Act, either for a single consignment or for tax payable for a particular period, and such security shall be adjusted against the tax payable under this Act for that consignment or that period, as the case may be." "Section 15. Establishment of fund - (1) There shall be established for the purposes of this Act, a fund to be called the West Bengal Compensatory Entry Tax Fund. (2) The fund shall be under the control of the State Government and there shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmerce and industry or for facilities relating thereto; (i) providing finance, aids, grants and subsidies to local bodies and State Government agencies for the purposes specified above. (2) The State Government shall - (a) ensure that the proceeds of tax collected under this Act, net of the cost of collection and incidental expenses, are utilized for facilitating trade, commerce and industry in the State; (b) identify the areas which require immediate development or maintenance of infrastructure and other facilities and allot proceeds of tax under this Act for the purposes specified in subsection (1); (c) ensure that the proceeds of tax collected under this Act, net of the cost of collection and incidental expenses, are not-much more than the amount actually required for development of local areas for facilitating trade, commerce and industry in the State." "Section 19. Maintenance of accounts - The State Government shall maintain proper accounts and other records, such forms in and in such manner, as may be prescribed." "Section 20. Administration of Fund - The State Government shall administer the Fund and take such decisions regarding investment in the development or faci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from outside the State and also to impose restrictions on freedom of trade or commerce in public interest. Mr. Poddar submitted and rightly that the impugned Entry Tax does not seek to impose tax to which similar goods manufactured or produced in the State of West Bengal are subject, to place goods manufactured or produced in the State at the same level with goods brought from outside the State. Mr. Poddar argued that in the absence of prior sanction of the President of India, the impugned Entry Tax Act was hit by Article 304(b) of the Constitution of India, since no Bill for enactment or amendment in law to impose restrictions on freedom of trade, commerce or intercourse with or within the State could be introduced or moved without the previous sanction of the President, if such enactment or amendment was proposed in public interest. Mr. Poddar submitted that taxing laws are not excluded from the operation of Article 301 of the Constitution of India. Mr. Poddar submitted that a taxing law which purports to impose a tax on inter-State or interregional trade, commerce and intercourse can interfere with the right of freedom of trade, commerce and intercourse throughout the territo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bihar Chamber of Commerce reported in (1996) 9 SCC 136. In the aforesaid case the Supreme Court held that "Some Connection" between the tax and the trading facilities extended to dealers directly or indirectly, would be sufficient to characterize it as compensatory tax. In Jindal Strips Ltd. (1) Vs. State of Haryana reported in (2003) 8 SCC 136 a Bench of the Supreme Court doubted the correctness of the law enunciated in Bhagatram Rajeev Kumar (supra) and Bihar Chamber of Commerce (supra) and referred to the Constitutional Bench, the specific question of whether the theory of some connection, as propounded in Bhagat Ram's case, and applied in Bihar Chamber of Commerce case, was contrary to law and the working test laid down in the case of Automobile Transport Ltd. (supra). Mr. Poddar also cited the decision of the Constitution Bench of the Supreme Court in Jindal Stainless Ltd. (2) & Ors. Vs. State of Haryana & Ors. reported in (2006) 7 SCC 241 where the aforesaid question was answered. The Constitutional Bench of the Supreme Court disapproved the view taken in the earlier judgements of the Supreme Court in Bhagatram Rajiv Kumar (Supra) and Bihar Chamber of Commerce (Supra) and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Poddar argued that the amount of Entry Tax collected is credited to the Consolidated Fund of West Bengal under Section 16 of the Act and the same is to be appropriated by the State Legislature. Thus the Act is for augmenting the general revenue and cannot be treated to be compensatory. Mr. Poddar submitted that the basic difference between a tax and a fee or a compensatory tax was, that the former was based on the concept of burden, whereas the latter was based on the concept of recompense and/or reimbursement. For a tax to be compensatory, there had to be some link between the quantum of tax and the facilities or services for which the tax was being imposed. Mr. Poddar submitted that whenever a law is impugned as violative of Article 301 of the Constitution of India, the Court has to see whether the impugned enactment facially or patently indicates quantifiable data on the basis of which the compensatory tax is sought to be levied. The Act must facially indicate the benefit which is quantifiable or measurable. It must broadly indicate the proportionality of the tax imposed, with the quantifiable benefit. Mr. Poddar further argued that Entry Tax levied in respect of a particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Entry Tax Act is also a common burden and responsibility of a welfare State and cannot be held to be compensatory for meeting the expenses incurred for the outlay for providing any special advantage to trade, commerce and intercourse. Mr. Poddar argued that in Jindal Stainless Ltd. (2) (supra) the Constitution Bench of the Supreme Court categorically held that exaction to reimburse and/or recompense the State, the cost of an existing facility made available to the traders or the cost of a specific facility planned to be provided to the traders, would be compensatory tax and that it was implicit in such a levy that the tax must be more or less commensurate to the cost of the service or the facility. Mr. Poddar emphatically argued that the proposition of law enunciated in Bhagatram Rajiv Kumar's case (Supra) and in State of Bihar Vs. Bihar Chamber of Commerce that indirect or incidental benefit to traders would suffice, has specifically been overruled in Jindal Stainless Steel Ltd. (supra). Mr. Poddar, thus, argued that the purpose for which the proceeds of Entry Tax was sought to be spent could not be treated as compensatory in nature. Mr. Poddar reiterated that the Entry Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its tax payers. Mr. Poddar strenuously contended that the Entry Tax Act not being compensatory in nature was violative of Article 301 of the Constitution of India and liable to be struck down. Admittedly the Act had not been introduced after obtaining prior approval of the President of India. In support of his submission that the impugned Entry Tax Act was not compensatory in nature, Mr. Poddar cited the following judgements:- (i) R. Gandhi Vs. State of Tamilnadu reported in (2008) 13 VST 390; (ii) Thressiamma L. Chirayil Vs. State of Kerala & Anr. reported in (2007) 7 VST 293; (iii) ITC Limited Vs. State of Tamil Nadu & Ors. reported in (2007) 7 VST 367 (Mad); (iv) Jindal Strips Ltd. & Anr. Vs. State of Haryana & Ors. reported in (2008) 12 VST 149; (v) Bharat Earth Movers Ltd. Vs. State of Karnataka reported in (2007) 8 VST 60 (Karn). (vi) Unreported judgement of the Jharkhand High Court in Tata Steel Limited Vs. State of Jharkhand & Ors. dated 3rd April, 2012. Mr. Poddar further argued that under Section 16 of the Entry Tax Act the proceeds of the levy under the Entry Tax Act are to be credited to the consolidated fund of the State of West Bengal. Referring to Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion issued by Government of West Bengal, Finance Department, Budget Branch, for constitution of a committee consisting of the Heads of various departments of the Government of West Bengal, inter alia provides that the provisions for the expenses from the Fund shall be made under the budgets of the respective departments as per the decision of the Committee. Mr. Poddar argued that the notification was completely contrary to Section 16 of the Entry Tax Act and also contrary to the Constitution of India, particularly Articles 266(3) and 199(1)(d) thereof. Mr. Poddar submitted that it was unimaginable how the committee comprising of secretaries of the Government of West Bengal could determine the budget provision and usurp jurisdiction of appropriation of money from the Consolidated Fund of the State which is exclusively reserved to the State Legislature. Mr. Poddar submitted that apart from Clause 5.3 two other Clauses i.e. 5.1 and 5.2 would demonstrate that the amount of Entry Tax collected under the Entry Tax Act was to be mixed with the general tax collected and forming part of the Consolidated Fund of the State. Mr. Poddar submitted that the notification further demonstrates th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State Government to spend the amount collected from one local area for another local area. Mr. Poddar finally submitted that the provisions of the Entry Tax Act also violated Article 304(A) of the Constitution of India in as much in the matter of levy of Entry Tax as the Entry Tax Act discriminates between goods brought into a local area from outside the State or outside the country and goods brought into a local area from with the State. If goods enter one local area of the State from another local area, there is no tax payable. Mr. Poddar finally argued that if goods have been subjected to tax under the West Bengal Value Added Tax Act 2003 or the Bengal Sales Tax Act, 1994, such goods, on their entry into a local area, would not be liable to Entry Tax. The Section, thus, patently discriminates between goods imported from outside the State and goods manufactured within the State. In the matter of levy of Entry Tax, for example, if any of the writ petitioners bring raw materials to West Bengal from outside the State, they will be liable to pay Entry Tax. However, if they produce the same raw materials within the State they would not be required to pay Entry Tax. Such discrimina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws in respect of trade and commerce with foreign countries including import and export across, customs frontiers. Mr. Poddar submitted that if an importer imported any goods from outside, the importer would required to pay import duty and again Entry Tax under the impugned Entry Tax Act, Entry Tax for delivery of such imported goods in factories, godowns etc. in the State of West Bengal. Thus, in a transaction which was in course of import the importer would have to pay Entry Tax over and above import duty. In support of his argument Entry Tax transgressed Article 286 of the Constitution of India. Mr. Poddar cited the following judgements:- (i) Re Sea Customs Act reported in (1964) 3 SCR 787; (ii) Godfrey Phillips India Ltd. Vs. State of U.P. reported in (2005) 2 SCC 515; Mr. Poddar submitted that, in enacting the impugned Entry Tax Act, the State Legislature had nullified the effect of the judgement dated 22nd November, 2007 of the West Bengal Taxation Tribunal in case of National Hydro Power Corporation Limited Vs. ACCT Siliguri Circle reported in 2008 (15) VST 158 (WBTT) whereby the West Bengal Taxation Tribunal had struck down the West Bengal State Taxes on Consumption o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y designed exception to the legislation normally applicable under Section 301 of the Constitution of India. However, Jindal Stainless Steel Ltd. (supra) provided that any compensatory tax would have to meet certain parameters and fulfil certain mandatory requirements. Briefly summarized these parameters are:- (i) the payment of compensatory tax is not for revenue but as reimbursement/re-compense for the special services/facility provided by the State; (ii) the Act must facially indicate the benefits to the payers which should be quantifiable and measurable; (iii) the Act must facially or patently indicate quantifiable data on the basis of which the compensatory taxes ought to be levied; (iv) the Act must indicate proportionality between the levied tax and the benefit; (v) if the Act does not indicate the above features facially then the burden is on the State to establish by placing full data and material before the Court that the levy of the tax is a reimbursement or recompense for the quantifiable/measurable benefit provided to is payers; (vi) the Court has to examine the pith and substance of the levy to see its effect and operation. In other words, the Court has to see, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in full. Mr. Kapur submitted that by giving an option or right to elect to the State Government whether or not to send the levy to the compensatory fund and, if so, the time, the amount or the proportion clearly demonstrates that the levy would be unrecognizably mixed up with the consolidated fund of the State and thereafter would cease to be identifiable or available or used to provide the service/facility to the payers, which is a mandatory requirement. Mr. Kapur submitted that the Act ought not to have left any choice to the Government to transfer the full amount of the levy to the compensatory fund. Rather, the Act should have facially provided/mandate and unquestionably shown that such disbursement was to be done on the face of the statute. Mr. Kapur submitted that the very terms of Section 18 of the Act make it clear that the proceeds of the levy are not intended to be used to directly provide service/facilities to the payers, which is the fundamental basis for realization of compensatory taxes. Sub-section 1 clearly indicates by use of the word 'may' in two places that the State has again reserved to itself alternatives or preferences to do whatever it may choose to do wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of clause (b) of Section 4(5) of the impugned Entry Tax Act, goods purchased from a registered dealer, against a tax invoice or invoice or bill, issued under the West Bengal Value Added Tax Act, 2003, or the West Bengal Sales Tax Act, 1994, are not liable to pay Entry Tax under the impugned Entry Tax Act. Mr. Khaitan further submitted that under the Value Added Tax Act, an importer-dealer is compulsorily liable to obtain registration and pay tax in respect of all his sales. A manufacturer/producer or a re-seller has to compulsorily obtain registration and pay tax as soon as his turnover exceeds Rs.5 lakhs, a petty amount, in the present day and age. A manufacturer/producer or re-seller also has the option to obtain voluntary registration even before he becomes liable to pay tax. Thus every dealer, unless he is a petty trader, is required to be registered under the Value Added Tax Act or the Sales Tax Act, as applicable. Mr. Khaitan submitted that the goods manufactured or produced in the State of West Bengal sold by a dealer registered under the VAT Act or the Sales Tax Act on a tax invoice or invoice or bill are not liable for entry tax upon entry into any local area, within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try Tax in the Consolidated Fund of the State shall be appropriated to the Entry Tax Fund in the Public Account. Mr. Khaitan submitted that Section 22 of the Entry Tax Act enables the making of rules for carrying out the purposes of the said Act. When the Act provides that appropriation out of the Consolidated Fund shall be made by the State Legislature by law for credit to the Entry Tax Fund, any rule made in exercise of the power under section 22 of the Act cannot provide for such appropriation. Rule 5(u) of the Entry Tax Fund Rules is ultra vires the provisions of the Entry Tax Act and also ultra vires the provisions of the Constitution. Mr. Khaitan further submitted that Chapter III of Part VI of the Constitution contains provisions relating to State Legislature. Articles 196 to 200 in the said Chapter contain provisions relating to "Legislative Procedure" and Articles 202 to 207 contain provisions relating to Procedure in Financial Matters. Mr. Khaitan submitted that Article 196 contains provisions as to introduction and passing of Bills. Article 197 provides for restriction on powers of Legislative Council as to Bills other than Money Bills. Sub-article (3) of Article 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State Legislature. Until the State Legislature makes such law, the Governor of the State can make rules for such regulation. Mr. Khaitan submitted that "withdrawal is not the same as 'appropriation'. It is only after appropriation by the State Legislature by law that withdrawal of money can take place. This is evident from the provisions of sub-article (3) of Article 204 extracted hereinabove. Mr. Khaitan submitted that Article 283 dealing with regulation of custody of the Consolidated Fund and payment of moneys into and withdrawal of moneys therefrom is clearly not meant to give a go by to the entire legislative procedure relating to appropriation contained in the Constitution. The Governor of the State is not empowered by Article 283 to appropriate any moneys out of the Consolidated Fund of the State by making rules. Further, the Entry Tax Fund Rules are not stated to have been made in terms of Article 283 but only in exercise of the rule making power granted by section 22 of the Act. Mr. Khaitan submitted that the act does not provide for compulsory! mandatory appropriation of the proceeds of the levy to the Entry Tax fund. Mr. Khaitan submitted that the scheme of the Act i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry manufacturer/ producer in the State makes imports is unfounded. It is submitted that in the said scheme of things, where the entire burden of the levy falls upon the importers, the tax is clearly discriminatory and cannot be said to be compensatory by way of reimbursement/ recompense in so far as the importers are concerned. Mr. Khaitant submitted that the impugned levy also constitutes an unreasonable restriction on the right to carry on business guaranteed by Article 19(1)(g) of the Constitution, and is violative of the said Article. Mr. Khaitan submitted that Goods manufactured in the State are sold not only within the State but also in the other States and are also exported outside the country. Mr. Khaitan submitted that all the States do not impose entry tax. If the burden of the levy is taken into account, the cost of goods manufactured in West Bengal by using raw materials, plant, machinery, equipment, etc. imported from outside the State would obviously be higher as compared to the cost incurred by a similarly placed manufacturer/ producer in a State which does not impose any entry tax. Thus, if the manufacturer/ producer in the State of West Bengal were to pass on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners namely Mr. Samit Talukdar and Mr. Moinak Bose adopted and elaborated on the submissions made by Mr. Poddar, Mr. Kapur and Mr. Khaitan, and as such their arguments are not separately recorded, to avoid repetition and prolixity. Mr. Bose cited International Tourist Corporation Vs. State of Haryana reported in (1981) 2 SCC 318 and the judgement of the Division Bench in Central Coalfields Ltd. Vs. the State of Jharkhand. Mr. Bose further argued that a fee is compensatory if that particular fee improves the flow of trade, and if so, it would be outside the purview of Article 301. Mr. Abhratosh Mazumdar appearing on behalf of the State traced the historical background leading to the incorporation of the Part XIII of the Constitution of India. Mr. Mazumdar submitted that after India achieved freedom in 1947, and before the Constitution was adopted, the process of merger and integration of the Indian States with the rest of the country had been accomplished, so that when the Constitution was first passed the territory of India consisted of 'Part A' States, which broadly stated, represented the provinces in British India, and 'Part B' States which were made up of Indian States. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion were also inspired by commerce clause contained in Section 92 of the Australian Constitution, which reads thus:- "On the imposition of uniform duties of customs, trade, commerce, and intercourse among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free." In this historical milieu the makers of the Constitution having regard to the economic unity and stability of the nation incorporated Part XIII in the Constitution. Mr. Mazumdar referred to Articles 301, 302, 303 and 304 of the Constitution of India. In Atiabari (supra) the constitutionality of the Assam Taxation (on Goods Carried by Roads or Indian Watherways) Act, (Assam Act 13 of 1954) was the subject matter of challenge. The purpose of the Act was to levy taxes on certain goods carried by road or inland waterways in the State of Assam including goods in transit. The Supreme Court, inter alia held that the content of freedom provided by Article 301 is larger than the freedom contemplated by Section 297 of the Constitution Act of 1935. If the transport or the movement of goods is taxed solely on the basis that the goods are thus carried or transported that directly affects the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... community regulated by law presupposes some degree of restriction upon the individual, that freedom must necessarily be delimited by considerations of social orderliness. (b) The collection of a toll or a tax for the use of a road or for the use of a bridge or for the use of aerodrome is no barrier or burden or deterrent to traders who, in their absence, may have to take a longer or less convenient or more expensive route. Such compensatory taxes are no hindrance to anybody's freedom so long as they remain reasonable. (c) For the tax to become a prohibited tax it has to be a direct tax the effect of which is to hinder the movement part of trade. So long as a tax remains compensatory or regulatory it cannot operate as hindrance. (d) Regulatory measures which do not impede the freedom of trade, commerce and intercourse and compensatory taxes for the use of trading facilities are not hit by the freedom declared by Article 301. They are excluded from the purview of the provisions of Part XIII of the Constitution for the simple reason that they do not hamper trade, commerce and intercourse but rather facilitate them. (e) Regulatory measures or measures imposing compensatory taxes f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciples with regard to the interpretation of Article 301 vis-à-vis the concept of compensatory tax:- "(i) Taxing laws are not excluded from the operation of Article 301, which means tax laws do amount to restriction as held in Atiabari (supra). It has to be examined whether such tax laws directly and immediately restricts trade and commerce. (paragraphs 6 & 47). (ii) Compensatory taxes constitute an exception to Article 301. It is a judicially evolved concept in Automobile Transport case as a part of regulatory charge. (paragraphs 31). (iii) Whenever any law is impugned as violative of Article 301, the Courts will have to examine the effect of the operation of the impugned law on the inter-State and the intra-State movement of goods, which movement constitutes an integral part of trade. (paragraphs 47). (iv) For a tax to be compensatory, there must be some link between the quantum of tax and the facility/services. (paragraphs 42). (v) In the context of Article 301, therefore, compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the costs of regulation or to meet the outlay incurred for some special advanta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 is no longer open in view of the judgements of the Supreme Court in Atia Bari Tea Company Limited Vs. State of Assam (supra), Automobile Transport (Rajasthan) Limited Vs. State of Rajasthan (supra), Jindal Stainless Steel Ltd. (supra) and numerous other judgements of the Supreme Court and different High Courts many of which have been cited on behalf of the respective writ petitions. Mr. Mazumdar could not dispute that a tax of any kind that related to movement of goods from one part of the territory of India to another would amount to a restriction on the right to free trade, commerce and intercourse throughout the territory of India guaranteed by Article 301. Mr. Mazumdar, however, argued that the tax imposed by the impugned Entry Tax Act being a compensatory tax, it was outside the purview of Article 301 of the Constitution of India. Mr. Mazumdar emphatically argued that the proposition that a compensatory tax would not impede free flow of trade, commerce and intercourse and would not offend Article 301 of the Constitution of India, as evolved in Automobile Transport (Rajasthan) Ltd. and confirmed in Jindal Stainless Steel Ltd. (supra) was well established. There was, thus, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Entry Tax Act specifies the purposes for which the proceeds of the levy of entry tax might be utilized the encasements which were struck down as ultra vires could not show that the proceeds would be utilized for facilitating trade development. After the judgement of the Supreme Court in Jindal Stainless Steel Ltd. (Supra) the various states enacted statues, enacted validation Act and effected amendments to existing Acts to bring similar compliance with the law as enunciated in Jindal Stainless Steel Ltd. (Supra). Most of these Enactments /Validation Acts/Amendments have been upheld by different High Courts. Mr. Mazumdar submitted that no data was required to be submitted in the instant case since, the impugned Entry Tax is facially and patently compensatory as earlier argued. In terms of the judgement of the Supreme Court in Jindal (3) only those states in which the impugned encactments were in operation for more than one financial year were required to furnish data. The impugned Entry Tax being in a nascent stage it was not possible to furnish data until and unless the tax was realized. Referring to Automobile Transport (Rajasthan) Limited (supra) Mr. Mazumdar submitted that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & Ors. (supra); Jindal Strips Ltd. & Anr. Vs. State of Haryana & Ors. (supra); Bharat Earth Movers Ltd. Vs. State of Karnataka (supra); Tata Steel Limited Vs. State of Jharkhand & Ors. (supra); National Aluminium Co. Ltd. Vs. State of Orissa & Ors. (supra); Dinesh Pouches Ltd. Vs. State of Rajasthan (supra); Indian Oil Corporation Ltd. Vs. State of U.P. (supra); cited by Mr. Poddar and Mr. Kapur, Mr. Mazumdar argued that the enactments impugned in the aforesaid cases, did not facially indicate that the tax imposed was 'compensatory', as in the case of the impugned Entry Tax Act. Unlike the impugned Entry, the enactments impugned in those cases did not spell out the purposes for which the proceeds of the levy could be utilized. Mr. Mazumdar argued that the trend of the decisions of the various High Courts, after pronouncement of the judgement in Jindal Stainless Ltd. (supra) show that existing enactments for imposition of taxes on movement of goods, which did not facially indicate the corresponding advantages to the taxpayers, as a class, were mostly set aside but post Jindal Stainless Ltd. (2) enactments and/or amendments where the purposes for which the proceeds of the levy coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matters enumerated in List II of the Seventh Schedule. In respect of matters enumerated in List III of the Seventh Schedule, which is the Concurrent List, both Parliament and the Legislatures of States have power to legislate. Entry 52 of List II in the Seventh Schedule empowers the State Legislature to enact laws with regard to taxes on entry of goods into a local area for consumption, use or sale therein. The power to enact a law imposing a tax on the entry of goods into local areas, for consumption or for sale or for use in those areas, can only be exercised by the State Legislature. The power of Parliament and Legislatures to enact laws is subject to the other provisions of the Constitution of India including in particular Chapter III of the Constitution of India relating to fundamental rights and Part XIII of the Constitution of India which guarantees freedom of trade, commerce and intercourse anywhere within the territory of India. Articles 286(1) and (2) of the Constitution provide as follows:- "286. Restrictions as to imposition of tax on the sale or purchase of goods.- (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or othervaluable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;" The definition of 'tax on the sale or purchase of goods' in Article 366(29A) of the Constiuttion is indeed extermely wide, as argued by Mr. Kapur, but in my view, not wide enough to include tax on entry of goods into a local area, which is covered by Entry 52 of List II. In Godfrey Phillips India Ltd. (supra), cited by Mr. Kapur, the Constitution Bench of the Supreme Court held:- 67. However, while widening the scope of Entry 54 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e power under Entry 52 of List II but with legislative power under Entries 54 and 62 of List II of the Seventh Schedule to the constitution, which respectively dealt with taxes on sale and purchase of goods and taxes on luxuries including entertainment amusement etc. The Supreme Court found that the word 'luxuries' in Entry 62 of List II referred to activities of indulgence, enjoyment or pleasure, and did not permit levy of tax on goods or articles by describing the same as luxury goods, as had been done by the State of Uttar Pradesh. The tax on luxury articles was held to be referable to Entry 54 of List II, which empowered the State to enact law on sale of goods subject to the provisions of Entry 92A of List I of the Seventh Schedule, and thus violative of Article 286(a)(b) of the Constiuttion. In Godfrey Phillips India Ltd. (supra), the Supreme Court held that "taxing entries must be construed with clarity and precision so as to maintain exclusivity, and a construction of a taxation entry which may lead to overlapping must be eschewed". Thus, where an entry describes the object of a tax, "all taxable funds pertaining to the object are within that field of legislation unless the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issa Entry Tax Act, 1999 could be levied on goods imported by the petitioners from outside the country. The High Court held that the enactment of law, in exercise of the power of the State Legislature under Entry 52 of the List II of the Seventh Schedule for imposition of entry tax on goods purchased from outside the country, would not violate Article 286 of the Constitution. The Orissa High Court distinguishing the judgement of the Supreme Court in Godfrey Phillips India Ltd. Vs. State of Uttar Pradesh (supra) held that in case of entry tax the taxable event was entry of goods into the local area whereas in case of customs duty the taxable event was on import of the goods into territory of India. In Primus Imaging Pvt. Ltd. Vs. State of Assam cited by Mr. Mazumdar reported in (2007) 9 VST 528 the Gauhati High Court held:- "From a reading of Article 286 of the Constitution, it becomes clear that this article does not permit States to levy tax on the sale or purchase of goods, which takes place in the course of import into, or export out of the territory of India. The restriction, imposed on the State, is, thus, in respect of levy of tax on the sale or purchase of goods, which ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Entry 27 relating to production, supply and distribution of goods and Entry 54 relating to sale and purchase of goods. Tax on entry of goods into local areas for consumption use or sale therein, imposed in exercise of legislative power under Entry 52 of List II, is distinct from tax on trade and commerce with foreign countries, import and export across customs frontiers, inter-state trade and commerce, taxes on sale or purchase goods or taxes on consignment of goods etc in course of inter-state trade or commerce and sale or purchase of newspapers etc. covered by Entries 41, 42, 92, 92A, 92B of List I of the Seventh Schedule to the Constitution of India. While import takes place as soon as the goods cross into the Indian customs territory, in case of Entry Tax, the taxable event is the entry into the local area after coming out of the customs area. Tax on entry of goods cannot be equated to tax on sale or purchase and is, therefore, not hit by Article 286(1)(b) of the Constitution. Articles 301, 302, 303 and 304 of the Constitution of India, relevant in the context of the challenge to the impugned Entry Tax Act, are set out hereinbelow for convenience:- "301. Freedom of trade, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritory of India, guaranteed under Article 301, subject only to the other provisions of Part XIII, that is, subject to Articles 302 to 307 of the Constitution, but not any other provision of the Constitution of India. Article 302 enables the Parliament to impose by law, such restrictions on the freedom of trade commerce or intercourse between one state and another, or within any part of the territory of India, as may be required in public interest. Thus, Parliament might enact law imposing such restrictions on the freedom of trade, commerce or intercourse between one State and another, or within any part of the territory of India, as may be required in public interest. However, the power under Article 302 of the Constitution to impose restrictions is conditional, the condition precedent for exercise of such power being the requirement to impose the restrictions, in public interest and this power can only be exercised by Parliament and not the State Legislatures. The power of Parliament under Article 302, to impose by law, restrictions on free trade, commerce and intercourse in public interest, is subject to the other provisions of the Constitution including in particular Article 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ountry to a local area as defined under section 2(1)(h) read with section 2(1)(d) and person who brings goods from an area within the State to a local area in the State. Facts would indicate that on the introduction of entry tax, manufacturers have opted to purchase raw materials from within the State because they are less costlier since the levy of entry tax has definitely created a tax barrier affecting the free-flow of trade, commerce and intercourse, such a tax violates article 301 of the Constitution and therefore liable to be declared as unconstitutional. The apex court in Vijayalashmi Rice Mill's case [2006] 147 STC 609; [2006] 6 SCC 763 held that even in the case of imposing cess for providing facilities like roads, bridges and storage facilities in rural areas, there must be a broad correlation between the fee being realised and the services rendered, even for traders who do their business in the State of Andhra Pradesh. Entry tax in Kerala, it may be noticed, is being collected only from persons who bring goods from outside the State while persons within the State are not burdened with the levy which is discriminatory and violative of article 14 of the Constitution of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be subject to tax; (ii) there should be no such tax and/or tax at lower rate on the goods in the State/Union territory from which the goods are imported; and (iii) the object of the imposition should be to prevent discrimination between imported goods and similar goods manufactured or produced within the State. To cite an example, if the Excise Duty on wines liqueurs and other alcoholic beverages is lower in the neighbouring State of Sikkim, than in the State of West Bengal, or if there is no excise duty at all in Sikkim on wines, liqueurs and other alcoholic beverages, it would be permissible for the West Bengal State Legislature to impose a tax that covers the difference in the excise duty, in exercise of power under Article 304(a) of the Constitution, to prevent discrimination in the State of West Bengal between wines liqueurs and other alcoholic beverages produced in West Bengal and those of similar quality imported from Sikkim, which would sell cheaper and thus affect adversely the market for locally produced wines, liqueurs and other alcoholic beverages. The object of the Entry Tax Act, as stated in its preamble is to provide for levy and collection of taxes on the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution are conjunctive or disjunctive, to a larger Bench, as pointed out by Mr. Mazumdar. However, there is no order of the Supreme Court, of stay of proceedings, in which the aforesaid issue may be of relevance. There is no authoritative pronouncement of the larger Bench of the Supreme Court, on the issue of whether Clause (a) and Clause (b) of the impugned Entry Tax Act are disjunctive or conjunctive. Having regard to the language and tenor of the proviso to Article 301(b), which provides that no Bill or amendment for the purposes of Clause (b) shall be introduced or moved in the Legislature of a State, without previous sanction of the President, this Court is of the view that clauses (a) and (b) of Article 304 of the Constitution, are to be construed as disjunctive. Had Clauses (a) and (b) of Article 304 been intended to be conjunctive, legislation in relation to the purposes of Clause (b) alone, would not have been subject to the specific restriction of previous sanction of the President. The Constitution makers have, in their wisdom, consciously not included Clause (a) in the proviso. It is well settled that the word 'and' may be construed disjunctively and read as 'or' to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses a restriction in the form of taxation on the carriage or movement of goods, and we hold that such a restriction can be imposed by the State Legislature only if the relevant Act is passed in the manner prescribed by Art. 304(b)." As per the law pronounced by the Supreme Court in Atiabari Tea Company Ltd. (supra), a tax which affects movement of goods from one part of the territory of India, to another, directly affects free trade, commerce and intercourse, throughout the territory of India, guaranteed by Article 301 of the Constitution of India. Under Entry 52 of List II, the State Legislature has the exclusive legislative competence to enact law imposing taxes on the entry of goods into local areas, for consumption, use or sale therein. A tax on entry of goods into a local area, however, restricts free trade, commerce and intercourse, even though the same may be in public interest. Thus, a State law imposing tax on entry of goods into local areas, can only be enacted by the State Legislature, in compliance with the requirement of the proviso to Article 304(b) of the Constitution, of previous sanction of the President of India, unless such tax falls within the judicially evolv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities. It would be impossible to judge the compensatory nature of a tax by a meticulous test and in the nature of things that cannot be done." The parameters laid down in Automobile Transport (Rajasthan) Ltd. (supra) for determining whether any tax was compensatory or not, were broadened in Bhagatram Rajiv Kumar (supra) where the Supreme Court held that if there was substantial or even some link between tax and the facilities extended to dealers directly or indirectly, the levy could not be impugned as invalid. In State of Bihar Vs. Bihar Chamber of Commerce (supra), the Supreme Court followed its earlier judgement in Bhagatram Rajiv Kumar (supra) and reiterated that some connection between the tax and the trading facilities extended to dealers directly or indirectly, would be sufficient to characterize the tax as a compensatory tax. However, as observed above, in Jindal Strips Ltd. (1) (supra) a two judge Bench of the Supreme Court doubted the correctness of the proposition of some connection laid down in Bhagatr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regulatory. This is the way of reconciling the concept of compensatory tax with the scheme of Articles 301, 302 and 304. For example, for installation of pipeline carrying gas from Gujarat to Rajasthan, which passes through M.P., a fee charged to provide security to the pipeline will come in the category of manifestation of regulatory power. However, a tax levied on sale or purchase of gas which flows from that very pipe is a manifestation of exercise of the taxing power. This example indicates the difference between taxing and regulatory. powers (see Essays in Taxationby Seligman)." "41. On the other hand, a fee is based on the "principle of equivalence". This principle is the converse of the "principle of ability" to pay. In the case of a fee or compensatory tax, the "principle of equivalence" applies. The basis of a fee or a compensatory tax is the same. The main basis of a fee or a compensatory tax is the quantifiable and measurable benefit. In the case of a tax, even if there is any benefit, the same is incidental to the government action and even if such benefit results from the government action, the same is not measurable. Under the principle of equivalence, as applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bench of the Supreme Court for adjudication in the light of the law as enunciated by the Constitution Bench. In Jindal Stainles Ltd. (3) Vs. The State of Haryana reported in (2006) 7 SCC 271. The Supreme Court found that data had not been placed before the High Courts to determine whether the impugned levies were 'compensatory' as per the requirements laid down in Jindal Stainless Ltd. (2) (supra), and accordingly remitted the respective writ petitions to the concerned High Courts for adjudication. The parties were permitted to bring relevant facts on record in the writ petition in the High Court. In Jaiprakash Associates Limited Vs. State of Madhya Pradesh & Ors. reported in (2009) 7 Supreme Court Cases 339 Dr. Arijit Pasayat and S.H. Kapadia, JJ., considering the importance of the issues relating to Article 301 and 304 and Part XIII of the Constitution, referred the following questions to a larger bench in terms of Article 345(3) of the Constitution:- "(1) Whether the State enactments relating to levy of entry tax have to be tested with reference to both clauses (a) and (b) of Article 304 of the Constitution for determining their validity and whether clause (a) of Article 304 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 245 and 246 of the Constitution of India, read with the appropriate legislative entries in the Seventh Schedule, particularly in the context of movement of trade and commerce. The Five Judge Bench directed that the batch of cases be placed before the Chief Justice of India for constituting a larger bench for reconsideration of the judgements of the Supreme Court in Atia Bari Tea Company Limited (supra) and Automobile Transport (Rajasthan) Limited (supra). The questions referred to the larger bench of the Supreme Court are yet to be answered. Even though there is no authoritative decision of the Supreme Court directly dealing with the issue of applicability of Articles 301 and 304 of the Constitution of India to a State law imposing a reasonable Entry Tax in exercise of its legislative power under Entry 52 of List II of the Seventh Schedule to the Constitution, the law laid down inter alia in Atiabari Tea Company Ltd. (supra), Automobile Trnasport (Rajasthan) Ltd. (supra) and Jindal Stainless Ltd. (2) (supra) relating to taxes which affect movement of goods still prevail. The validity of the impugned Entry Tax Act, therefore, has to be decided on the basis of the law pronounced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of India. Similarly, when an action is challenged as discriminatory, a case of discrimination will have to be made out. However, when a statute is challenged on the ground of lack of legislative competence or on the ground of an apparent infringement of a constitutional provision, as in this case, factual details may not be necessary. A tax on movement of goods, having judicially been construed as a restriction on the right to free trade, commerce and intercourse, if any Statute imposing such tax is challenged on the ground of non-compliance of the requisites of Section 304(b), the State would have to disclose data to establish that the tax was compensatory and hence beyond the net of Articles 301 to 304 of the Constitution of India. The State would have to disclose quantifiable data, to establish that the tax sought to be raised is more or less commensurate with the benefits provided and/or to be provided to the tax payers as a class. In Saghir Ahmad Vs. The State of U.P. reported in AIR 1954 SC 728 the Supreme Court observed that, when an enactment, on the face of it was found to violate a fundamental right guaranteed under Article 19(1)(g), it must be held to be invalid, u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and appreciates the needs of the people, and the laws it enacts are directed to problems which are made manifest by experience, and that the elected representatives assembled in a legislature enact laws which they consider to be reasonable for the purpose for which they are enacted. As pointed out by Mr. Khaitan, earlier Entry Tax Laws enacted in the State of West Bengal, such as Tax on Entry of Goods into Local Areas Act, 1962 and Tax on Entry of Goods into Calcutta Metropolitan Area Act, 1972 were enacted with the previous sanction of the President of India. The West Bengal State Taxes on Consumption or Use of Goods Act, 2001, which had not been enacted with previous sanction of the President of India, had been struck down by the West Bengal Taxation Tribunal in the case of National Hydro Power Corporation Limited Vs. ACTT Siliguri reported in 2008 (15) VST 158. It is immaterial that the State Legislature might have earlier, in exercise of legislative power conferred under Entry 52 of List II of the Seventh Schedule to the Constitution, enacted law with the previous sanction of the President of India, in conformity with Article 304(b) of the Constitution of India. There can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to the financial needs for development and facilitation of trade, commerce and industry in the local areas of the State. Section 15 provides for establishment of the West Bengal Compensatory Entry Tax Fund. Section 16 provides for the manner in which the proceeds of Entry Tax are first to be credited to the West Bengal State Consolidated Fund, and thereafter, by appropriation, if law enacted by the State Legislature so provides, be credited to the Compensatory Entry Tax Fund, after deduction of expenses. Section 18 restricts the purposes for which the proceeds of the levy under the impugned Entry Tax Act might be utilised. The question is whether the impugned Entry Tax Act as enacted is in effect and substance a compensatory tax, applying the tests laid down in Jindal Stainless Ltd. (2) (supra). In view of the law laid down by the Constitution Bench of the Supreme Court in Jindal Stainless Ltd. (2) (supra), whenever a law is impugned as violative of Article 301, in that it restricts free movement of goods, by imposing a tax on entry of goods into any particular area or areas, the Court would have to examine whether the law complies with the requisites of Article 304, and if no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Municipal Board provides no facilities whatever to the owners of vehicles like stage carriages making use of National Highway No. 24. The township of Pilkhwa is off the national highway and is quite at some distance. It is connected by a road and a part of the national highway has been included within the municipal limits. Merely because stage carriage operators like the appellant play their stage carriages on permits issued on the inter-statal route Delhi-Garhmukteshwar which falls on the national highway and stop their buses for the facility of passengers going to and coming from Pilkhwa, or that the Municipal Board has set out two electric poles at the toll barriers for facility of collection of the toll tax, does not justify the imposition of a toll tax. Usually, the consideration for a toll is some amenity, service, benefit or advantage which the person entitled to the toll undertakes to provide for the public in general, or the persons liable to pay the toll. The national highway is being maintained by the government and the approach road built by the Public Works Department. There is a nallah constructed by the Municipal Board for flow of the sewage water from the town ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bridges for the benefit of the tax-paying citizens and hence to contend that the impugned levy is being raised only for the said purpose is not justified. Maintenance of roads, bridges, etc., are generally met from the general funds or revenue. Whether goods are transported into the State from outside the State or abroad, the State has got a duty to provide facilities like roads, bridges, etc., which are being enjoyed not only by the persons who bring the goods notified for levy of entry tax, but also by others." In Thressiamma L. Chirayil Vs. State of Kerala & Anr. (supra) cited by Mr. Poddar, a Division Bench of Kerala High Court considered the Constitutional Validity of Kerala Tax on Entry of Goods into Local Areas Act, 1994. Applying the principle of equivalence laid down by the Supreme Court in Jindal Stainless Steel Ltd. (supra), the Division Bench found that there was no connection or nexus with the collection of Entry Tax under the Kerala Entry Tax Act, 1990 and its utilization for the benefit of traders/manufacturers from whom such tax was collected and consequently the levy of Entry Tax was unauthorized and violative of Article 301 of the Constitution of India. The Divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleadings filed on behalf of the State merely gave statistics with regard to total costs of building roads and bridges and on maintenance of roads that had been incurred by the State from year to year. The Madras High Court was of the view that irrespective of whether any goods were transported into the State from other States, or abroad, the State had a duty to provide facilities such as roads and bridges and in any case there were taxes for maintenance of roads, realized from owners of motor vehicles, on the basis of the laden weight of the vehicles, which had not been disclosed by the State in its affidavit. In West Bengal too, there are taxes levied on motor vehicles, on the basis of laden weight, which are utilized to meet inter alia the costs of construction and maintenance of roads. In Jindal Strips Limited & Anr. Vs. State of Haryana & Ors. reported in [2008] 12 VST 149 (P&H) (supra) cited by Mr. Poddar, the Division Bench of the Punjab and Haryana High Court held that the impugned levy under the Haryana Local Area Development Act (13 of 2000) as amended by the Haryana Local Area Development Tax (Amendment) Ordinance (1 of 2007), was not compensatory, tested in the light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompensatory, since the revenue received by way of Entry Tax was deposited in the Consolidated Fund of the State, and expenditure therefrom, incurred for development work was not specifically identifiable. The Court held that tax to meet expenditure in general, for infrastructure development, for the welfare of the general public, could not be considered compensatory tax. In Dinesh Pouches Ltd. Vs. State of Rajasthan (supra) cited by Mr. Kapur a Division Bench of Rajasthan High Court held that the Rajasthan Tax on Entry of Goods into Local Areas Act, 1999 was ultra vires Article 301 of the Constitution of India, observing that the said Act "has not been imposed for providing specific benefits/facilities to trade or commerce in quantifiable measure". The Division Bench of Rajasthan High Court further held:- "....When admittedly in the present case requirement of article 304(b) before enacting a law falling within the domain of article 301 has not been followed, the impugned Act must be held to be ultra vires to Chapter XIII of the Constitution in consonance with Atibari's case AIR 1961 SC 232." In Indian Oil Cooperation Limited Vs. State of Uttar Pradesh and Ors. cited by Mr. Kap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the Act is intended to provide certain identifiable benefits to trade. The provision in the Budget of 2008-09 for credit of Rs. 250 crores to the special fund created, the funds earmarked for infrastructure development and provisions for amenities to different departments and the constitution of a committee to examine the developmental schemes and to sanction and allocate funds, which materials have been placed in the affidavit dated August 8, 2008, are further pointers that should enable the levy to partake of the character of being compensatory in nature. While it is correct that the development of infrastructure and provision of amenities may also benefit persons other than the prayers of entry tax, the said fact, by itself, will not affect the compensatory nature of the levy, inasmuch as, it is not a requirement, such a situation being impossible, that the levy of entry tax should bring benefit only to those from whom the tax is collected." In Indian Oil Corporation Limited and Anr. Vs. State of Bihar and Ors. reported in (2007) 10 VST 140 (Patna) the Division Bench of Patna High held that the Bihar Tax on Entry of Goods into Local Areas for Consumption or Sale Therein Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011 Tatal Steel Ltd. Vs. State of Jharkhand & Ors. along with a batch of other writ petitions. By a judgement and order pronounced on 3rd April, 2012, the Division Bench of Jharkhand High Court held that Section 3 of the impugned Act of Jharkhand, that is, the charging section, was ultra vires the Constitution of India and consequently none of the provisions of the impugned Act could be enforced. The Court held "the State further failed to discharge its burden by placing material or even calculation or data before this Court that payment of compensatory tax is reimbursement for the quantifiable or measurable benefits provided or to be provided to its tax payers. The creation of the fund under clause (a) to (d) of section 4(3) in the name of the Jharkhand State Trade Development fund and utilization of the tax amount for the purposes as given in clauses (a) to (d) under sub-section (3) of section 4 do not indicate and prove reimbursement/recompense of the tax amount to the tax payers. The purposes shown in clauses (a) to (d) of sub-section (3) of section 4 of the Act of 2011 are general nature and not specific benefits to the tax payers." Whether a tax is a compensatory tax or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for various reasons, leaving some part of the tax collected, unutilized. Thus, an impugned enactment would not be vitiated only because it might bring in some revenue, in the sense that the unutilized amount of the levy would be utilized for other general purposes. Nor would a Statute be vitiated because the specific facilities provided by the State to the class of taxpayers, may also be enjoyed by some others, who do not have to pay the tax. If a tax is compensatory, applying the parameters laid down in Jindal Stainless (2) (Supra), that tax would not cease to be compensatory only because the proceeds of the tax might have to first be credited to the Consolidated Fund of West Bengal and thereby get mixed up with the revenue realized by the State. As rightly pointed out by Mr. Mazumdar, in Automobile Transport (Rajasthan) Limited (supra) the Supreme Court clearly held that it would not make any difference if money collected from the tax was not put into a separate fund, so long as the tax was for specific facilities for the trade people who paid the tax and the expenses for providing those facilities were borne by the State. However, in this case, the Entry Tax lying to the Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax, the Entry Tax collected from one local area must be identified to be spent in that local area and in no other area. In Automobile Transport (Rajasthan) Limited (supra) the Supreme Court was concerned with a tax on motor vehicles and not a tax on entry of goods into local areas for consumption, use or sale therein. In Jindal Stainless Ltd. (2) (supra) also the question of whether tax for entry of goods into a local area for consumption, use or sale therein, could be utilized for the development of another local area was not considered. Utilization of Entry Tax collected from a local area for consumption, use or sale of goods in that local area, for development of trade facilities in the rest of the State, would denude the tax of its compensatory character. The theory of direct and immediate effect and the principle of equivalence can only be achieved if the amount of Entry Tax collected from one local area is spent for the benefit of the trading people of that local area, or atleast proportionally allocated between that local area and those other local areas, which the goods subject to levy might enter, for further consumption, use or sale. Significantly, in course of argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, a provision conferring very wide and expansive powers on an authority can be read down and construed in conformity with the legislative intent that the power should be exercised within constitutional limitations. As held by the Supreme Court in Arun Kumar Vs. Union of India reported in (2006) 286 ITR 89 (SC) where a statute is silent or is inarticulate, the Court would attempt to transmute the inarticulation and adopt a construction which would lean towards its constitutionality, without departing from the material of which the law is woven. Where the plain interpretation of a statutory provision gives a manifestly absurd and unjust result, which could never have been intended by the legislature, the Court may even, 'do some violence' to the language used by the legislature to achieve the obvious intention of the legislature and save the constitutionality of the statute and render the same workable. This proposition finds support from the judgements of the Supreme Court inter alia in Bhudan Singh Vs. Nabi Bux reported in [1969] 2 SCC 481; K.P. Varghese Vs. ITO reported in [1981] 131 ITR 597 (SC); C.W.S. (India) Ltd. Vs. CIT reported in [1994] 208 ITR 649 (SC) and Calcutta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vides, credit such proceeds to the Fund from time to time, after deducting the expenses of collection, for being utilized exclusively for the purposes of this act" Section 16 as construed above, read with Sections 15 and Section 18(1) of the impugned Entry Tax Act, casts a mandatory statutory duty and/or obligation on the State Government to appropriate and credit the proceeds to the Compensatory Entry Tax Fund, provided the State Legislature, by law, provides for such appropriation. The use of the word 'may' in Section 16 of the impugned Entry Tax Act, would make no difference. In ordinary parlance, 'may' implies discretion. Normally the world 'may' is used when a provision is meant to be directory where a statutory provision confers power, coupled with performances of a public duty, as in this case, may would mean 'must' as held by the Supreme Court in Delhi Administration Vs. I.K. Nanjia reported in (1980) 1 SCC 258. Going by the plain ordinary meaning of Section 18 and the Sub-sections thereunder, many of the benefits contemplated therein might, as observed above, be part of the general obligations of the State to its tax payers and the people of the State, for example, cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax must be held to restrict the right to free trade, commerce and intercourse, throughout the territory of India, even though the restriction is reasonable and in public interest. There can be no doubt that the State Legislature has exclusive power to enact legislation imposing a tax on the entry of goods into a local area, for consumption use or sale therein by virtue of Entry 52 of List II of the Seventh Schedule to the Constitution of India. However, this power is subject to the limitations imposed by the Constitution itself, particularly Part XIII thereof. The imposition of a compensatory tax, being a judicially devised exception to the restrictions of Articles 301 and 303 of the Constitution of India, the tests judicially enunciated in Jindal Stainless Ltd. (2) (supra) to examine whether the impugned tax on movement of goods from one area to another is, in effect and substance, a compensatory tax, must strictly be applied before the validity of an enactment imposing the impugned tax can be upheld, notwithstanding non-compliance of the requisites of Article 304(b) of the Constitution of India. A taxing Statute generates revenue for various developmental and welfare activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he quantifiable or measurable benefits to be provided in lieu of the levy. The data on the basis of which the compensatory tax is sought to be levied is neither disclosed in the impugned Entry Tax Act or the Affidavit-in-Opposition filed by the State. There being no disclosure of the quantifiable benefits or the proportionality of the levy to the quantifiable benefits, either in the impugned Act or by way of affidavit, the tax does not meet the test of compensatory tax, even though the tax imposed by the impugned Act may be in public interest, and perhaps reasonable too. The previous sanction of the President of India not having been obtained, before enactment of the impugned Entry Tax Act, this court is constrained to hold that the impugned Entry Tax Act is ultra vires Section 304(b) of the Constitution of India. The writ petitions are disposed of accordingly. This Court cannot, but record its appreciation, for the immense assistance rendered to this Court, by the respective counsel appearing for the parties and in particular Mr. Avrotosh Mazumdar for the State and Mr. Poddar, Mr. Kapur and Mr. Khaitain for the writ petitioners, by their tireless and commendable hard work. (I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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